The risk premium of a ﬁnancial asset is the
A) additional price that must be paid for riskier investments.
B) rate that compensates for risk.
C) rate that compensates for the risk of inﬂation.
D) same as the discount rate.

Question

Quizplus · Accepted Answer

The risk premium is the rate that compensates for risk, which is why option B is the correct answer. Option A is partially accurate but not complete as it only refers to riskier investments. Option C is incorrect as it refers to the rate that compensates for the risk of inflation, not the risk premium. Option D is incorrect as the discount rate can be different from the risk premium.

The Risk Premium of a ﬁNancial Asset Is the